A Snapshot Of America's Medical Marijuana Markets: Arizona

In 2010, Arizona voters passed Proposition 203, legalizing medical cannabis use, by a razor-thin 50.1% margin. December 2012 would see the first dispensary open in the state.

In the years since, Arizona's market has grown, reaching several milestones in recent years. While not immune to the latest market downturn, many in Arizona appear confident for the state's prospects.

Cannabis By The Numbers

Numbers appear favorable across the board. Examples include a patient enrollment of over 203,000 citizens, according to April 2019 figures from the state Department of Health.

In addition to robust patient enrollment, the state’s sales appear strong. Data from BDS Analytics said Arizona generated $581 million in medical spending in 2018, with a forecasted figure of $761 million by 2024.

Those who spoke to Benzinga believe the state performed well during a rough patch for the market.

"It appears Arizona has made it through the pricing bottom of the market and has somewhat stabilized just above the bottom," said Mason Cave, a board member of the Arizona Cannabis Chamber of Commerce.

Emerging cannabis brands saw success in the state as of late, according to Beth Stavola, chief strategy officer and director of MSO iAnthus Capital Holdings Inc ITHUF. Stavola said iAnthus currently boasts a 54% penetration in Arizona stores.

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'A Model Program'

Steve White, CEO of Harvest Health & Recreation Inc HRVSF, a Tempe, Arizona-headquartered MSO, heaped praise on state regulators for the performance.

"They should primarily, with an assist from some thoughtful operators, be credited with running a model program in the state," White said.

Arizona does have its issues, according to some opinions. The state Cannabis Chamber of Commerce's Cave pointed out supply issues: "Despite the fact that a lot of the product is grown indoors, monsoon season tends to mess with the crops."

Alex Glueckler, product manager for cannabis tech brand Silverware, noted the state Department of Health doesn't share the active enforcement of businesses as it does on the consumer side of the business. Glueckler expanded on the issue and potential issues ahead.

The Challenge Going Forward

"Companies are left to manage their own systems and are responsible for showing proof when audited," Glueckler said. "One of the challenges the Arizona government will experience is transitioning from [the Arizona DHS] to a more comprehensive B2B solution once the market becomes recreational."

The product manager also highlighted a potential issue with the state's licensing method, which currently only issues licenses to nonprofits. "We anticipate a certain amount of administrative and legal headaches when making the transition to for-profit to accommodate recreation," he forecasted.

'Access To Banking'

Stavola mentioned the ongoing banking issues for cannabis ventures: "We are one of the lucky ones with access to banking."

Stavola explained that iAnthus and other MSOs in the state tend to find banking options from one of a few institutions in the state working with cannabis.

"However for most Arizona operators, lack of banking and legitimate merchant services is still a major struggle," Stavola said. That struggle extends to companies with banking options, as most partners in the supply chain remain without an account.

4Front Ventures Corp FFNTF VP of Operations for the company's Mission Dispensaries in Arizona, Nick Courtier, touched on the added benefits of banking solutions for the industry.

"As soon as banking laws are normalized with other industries, we will see a huge influx of opportunities for ancillary businesses, creating jobs and a micro industry that doesn’t exist today," he said.

While banking issues present concerns, most appeared confident in the state's ability to address the issue.

The Legal Trouble With Cannabis

Tyler Beuerlein, chief revenue officer for cannabis banking and payment brand Hypur, used the state's legalizing of extracts in May 2019 as a way it has handled market concerns.

The extract decision came via a state Supreme Court ruling in the Rodney C. Jones case. The trial centered on a 2013 arrest of the medical cannabis cardholder for possession .05 ounces of jarred hashish.

"It looks like [the state] took an innocent guy, who pretty much thought he was compliant with the law and raked him over the coals," said retired lawyer and Arizona medical cardholder Curtis Shelton. "This is a big problem," the 25-year legal professional said, pointing towards regulations and the attitude of lawmakers.

With the market trending upward and confidence in lawmakers, the push for adult use legislation began once again after it failed to pass a vote in November 2016. Opening 2020, the state saw six cannabis bills filed for the new legislative session.

Bills include HB 2178, which aims to expunge and erase cannabis possession charges. Additional measures intend to address qualifying medical conditions, pesticide bans and banning indoor vaping.

Cannabis On The Ballot In 2020

In 2020, a ballot measure will once again ask if voters want to see adult use legislation in the Grand Canyon State. Cave said the Cannabis Chamber of Commerce is supporting a referendum through the state Legislature. He said the likelihood of passage is "very high."

If it were to pass, Arizona could see itself earning an additional $711 million in adult use spending by 2024, according to BDS Analytics.

Regardless, Stavola sees additional consolidation on the horizon, noting the uncapped amount of licenses a company can hold in Arizona. Stavola said the market rule is "very different than it is in virtually every other state."

Meanwhile, Glueckler said actual excitement might be seen in the licensing space, where the state reportedly has no plans to offer additional licenses beyond the 130 already assigned. The product manager forecasted that the value of the existing 130 will only increase once recreation is introduced.